Class 6: Sources of Competitive Advantage

MG106 Strategic Management

José Ignacio González Rojas
j.i.gonzalez-rojas@lse.ac.uk

London School of Economics and Political Science

July 1, 2025

Today’s Investigation 🔍

Three Critical Questions

1️⃣ What have been Apple’s sources of competitive advantage?

2️⃣ Is the PC industry attractive? What are the dynamics?

3️⃣ How sustainable is Apple’s position in PCs? iPhones? iPads?

We’ll use everything we’ve learned: business models, industry analysis, and resources

Let’s Start with History 📚

What made Apple special?

Question 1: Sources of Competitive Advantage

Think Different 🌟

What Made Apple… Apple?

From the 1980s to today, what resources and capabilities set Apple apart?

Let’s build our list together

Apple’s Historical Edge

Sources of Competitive Advantage

  • Ease of use → Graphical interface when others had command lines
  • Closed ecosystem → Control over hardware + software
  • Design excellence → Products as art, not just tools
  • Premium brand → Customers paid 2-3x more
  • Loyal customers → Almost religious devotion
  • Niche dominance → Desktop publishing, education

But if Apple had all this… why did it nearly die?

Question 2: PC Industry Analysis 🖥️

The Brutal Reality of PCs

Let’s Analyze the Forces

Is the PC industry attractive?

Use our Five Forces lens

Verdict: Terrible Industry! 💀

The Numbers Don’t Lie 📊

Force Reality Impact
Buyers 50,000+ unit orders Choose on price
Rivalry Fragmented market No pricing power
Entry White-box = 30% share Constant pressure
Substitutes $300 alternatives Eroding demand
Suppliers Intel margins: 56% They get the profits

So how does Apple survive in this wasteland?

Question 3: Sustainability Analysis 🛡️

The Mac Dilemma

From 53% to 10% Margins

The 1990s Collapse:

  • Windows closed the usability gap
  • Developers abandoned Mac (small installed base)
  • OS development: $1B cost, but only 11M users vs Windows’ 100M+

Jobs’s Response:

  • Switch to Intel (risky $1B bet)
  • Perfect timing: iPod provided cover
  • Result: Dominates >$1000 laptops… but still <5% overall share

Is this sustainable?

Beyond the Mac: New Frontiers

Analyzing Each Business

Product Position Threats Sustainability
iPod 70% share Music streaming, phones Declining ⬇️
iPhone Rising star Android, carriers Strong… for now ✓
iPad Just launched Too early to tell Unknown ❓

What makes iPhone different from iPod?

The Resource Test

Which Advantages Last?

Resource Valuable? Rare? Inimitable?
Premium brand ✓ ✓ ✓
Ecosystem lock-in ✓ ✓ ✓
Design capability ✓ ✓ ?
Innovation culture ✓ ✓ ✓
User data/network ✓ ✓ ✓

Key Insight: Products can be copied, ecosystems cannot

Strategic Evolution 🔄

From Products to Platforms

Mac Era: Great product in bad industry → Limited success

iPod Era: Great product + iTunes ecosystem → Temporary dominance

iPhone Era: Platform + App Store + Network effects → Sustainable advantage?

The lesson: Innovation must create new competitive space

Key Takeaways

Lessons from Apple 🎯

Resources vs Features 🏗️

Beautiful products aren’t enough - need inimitable resources and systems

Industry Structure Matters 📊

Even Apple struggles in bad industries - must change the game, not just play better

Timing is Everything ⏰

Intel switch: Right move, perfect timing - each innovation built on the previous

Ecosystems > Products 🔗

Sustainable advantage comes from systems - lock-in through switching costs

Your Turn to Think 🤔

Looking Forward from 2010…

Bear Case 🐻

Android will win (open vs closed)

Carriers will revolt

Innovation will slow without Jobs

Bull Case 🐂

Ecosystem is unbreakable

Brand premium sustainable

Innovation culture embedded

What’s your prediction?

For Tomorrow 📚

Prepare: Uber vs. Didi

Key Questions:

  • What is Uber’s innovation?
  • Does surge pricing make sense?
  • Why did Uber fail in China?

Hint: Think about local adaptation vs global strategy 🚗